Fixing the Bottom 5 Percent—5 Options To Give Your Struggling Franchisees
Are you afraid to talk about your failures? Most of us are. But whether in business or in life, that’s how you learn and grow!
As a franchisor, you might want to believe that all of your franchisees are doing well and making the most of their investment. But the reality is that there is always going to be someone at the bottom. And if your brand has more than 100 units, there could be multiple owners who are struggling. It’s the law of averages; the bigger the brand, the more there are.
So now that we’ve acknowledged that these “problem” franchisees exist, the question becomes, What should we do about it?
5 options to give your struggling franchisees
No one awards a franchise to someone expecting them to struggle. Any ethical franchisor will provide their owners with quality and ongoing training and support. After all, it’s in your best interest for them to do well!
As much as you may want to ignore that a problem exists, you owe it to yourself and your franchisees to deal with the issue. Your first step, of course, is to provide these franchisees with the training and advice needed to turn their business around, and there are a wide range of possibilities! But you can only do so much. And if they aren’t implementing or responding to your attempts to help, or are now doing their own thing, you’ve reached a point where you must take action.
After you’ve exhausted all your typical internal efforts and ideas, your next step may be to work with a consultant who can, either individually or in a group setting, work directly with these struggling owners to get them back on track. The tough love, brutally honest, and difficult conversation goes something like this, “I respect you, I understand you, and I want to help you. It’s obvious that what you’re doing isn’t working. So we need to try something different.”
I’ve done this work before, and it’s never easy. Sometimes, it’s better for an objective outsider to come in with no baggage, no history… just a mission “to resolve the situation, peacefully.” As a neutral, third-party participant, I’ve helped franchisees and franchisors see the reality (not looking for blame!), and help them determine what steps they have to take to turn things around, as well as help them shift their attitude, if needed.
But if that doesn’t work?
What comes next can get frustrating, disappointing, and sometimes even hostile (if you’re not careful), but in working with a number of brands over many years, I’ve found an approach or alternative path that gives the troubled franchisees the ability to get out or turn things around gracefully—and usually without legal action or other drama.
This path involves giving them five choices. They must choose, or the choice will be made for them. They must pick one of the following options.
- Close the unit: This is the most drastic option. It involves shutting things down, negotiating with the landlord, bank, and suppliers, and (in some cases) bankruptcy. While not the best option, sometimes it is inevitable. This gives all the parties the option to just get it over with and move on.
- Move your store: If it’s a location-based franchise, maybe the store’s location simply isn’t good. Perhaps it used to be good, but access to the store, visibility, or the presence of a new competitor has changed that. Relocation takes money and time, but it might be worth it for owners who have seen past success and are committed to making their investment a success.
- Sell your business: Let’s find a qualified buyer and sell your business. The owner has to keep in mind that the valuation has to be realistic. No one is going to pay for their mistakes. But if the business has cash flow and assets, the franchisee should be able to sell it successfully to a qualified buyer.
- Work with me (your franchisor): Offer to work with the franchisee to come up with a specific plan for their business. Maybe this involves reducing (or waiving) their royalty fees for a time so they can use that money to reinvest in the business. This is money they can (and must!) use to fix their store, hire new staff, or implement other specific and affordable solutions because you want them to succeed and get back on track. (Tip: If you decide to go this route, you’ll want to have them sign a mutual release form and clearly document expectations, timelines, and related details.)
- We’re going to fight about it: If the franchisee is resistant to any help you offer and refuses to take the action needed to either turn the business around or sell/close the store, you’ll be forced to take action. This could mean the “last resort” of taking legal action and putting the owner into default for noncompliance or nonpayment of fees. This usually leads to arbitration or litigation—which nobody wants. When presenting this option, let the franchisee know that you don’t want to fight, and that it may possibly put them into bankruptcy—but also that you have an obligation to protect the brand and can’t have them continue to struggle and be non-responsive or unreasonable.
Once you give them their options, give them some time to think about it. Then you can have a follow-up discussion about their choice to dive into the next steps. It’s not an easy decision for sure, but change has to happen. Struggling franchisees can’t be allowed to continue indefinitely. Not only is it an injustice to them, but also to the rest of the franchisees in the system and the brand. You, the franchisor, have the obligation and responsibility to deal with these situations. Ready or not, like it or not.
As a franchisor, it’s your responsibility to deal with these issues reasonably and individually as they come up. No two cases are exactly the same. These situations are difficult and can get ugly. People can be impossible, hurtful, blaming, nasty, and react with all kinds of drama. But you’ve got to see through that and stay focused on a reasonable resolution of the situation.
One solution that can be a helpful piece of this puzzle may be my Franchise Lifecycle Program, designed to give struggling franchisees some new perspective. This four-part video and coaching program is based on my 30 years of experience as both a franchisor and franchisee and is designed for any franchisee who wants to achieve that next level of success.
John Francis (aka Johnny Franchise) is a franchise advisor, speaker, and consultant. Having been both a franchisee and franchisor, he has a deep understanding of the issues both face. He says franchising is in his blood: his parents turned their family haircutting business into a 1,000-salon franchise empire. Learn more here or call 612-868-0745.
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